36 CAN SMALL FARMERS PROSPER? A REFLECTION FROM RESEARCH ON AGRICULTURAL CREDIT USERS IN LOMBOK, INDONESIA 1) DAPATKAH PETANI KECIL SEJAHTERA? SUATU REFLEKSI DARI PENELITIAN TENTANG PENGGUNA KREDIT PERTANIAN DI LOMBOK, INDONESIA Taslim Sjah Faculty of Agriculture, University of Mataram, Lombok 83125, Indonesia Email: [email protected] ABSTRACT This paper analyses whether farmers in Lombok, Indonesia can prosper taking into account their small possession of agricultural land and their long dependency on credit. The research used a survey to interview farmers and other stakeholders during two periods of fieldwork in Central Lombok. During the first period the agricultural credit scheme of ‘Food Sufficiency Credit’ (Kredit Ketahanan Pangan, KKP) was distributed for the first time in the Province of West Nusa Tenggara. Collected data were analysed descriptively. The study concluded that small farmers’ prosperity may be achieved but only with substantial changes in the current credit systems and farming systems. For the time being, credit or other government supports are still required until changes brought by this support impact positively upon farmers’ livelihoods. A long term commitment is required by all concerned in this process. ABSTRAK Tulisan ini menganalisis apakah petani di Lombok, Indonesia dapat sejahtera mengingat kecilnya penguasaan lahan petani dan ketergantungan panjang mereka terhadap kredit. Penelitian ini menggunakan survei untuk mewawancarai petani dan para pihak lainnya selama dua periode kunjungan lapangan di Lombok Tengah. Dalam periode ini Kredit Ketahanan Pangan (KKP) disalurkan untuk pertama kalinya di Provinsi Nusa Tenggara Barat. Data yang terkumpul dianalisis secara deskriptif. Penelitian ini menyimpulkan bahwa kesejahteraan petani kecil mungkin dapat dicapai, tetapi hanya melalui perubahan yang besar (substansial) pada sistem perkreditan dan usahatani saat ini. Kredit atau bantuan lainnya dari pemerintah untuk sementara waktu masih dibutuhkan hingga perubahan yang dibawa oleh program pemerintah telah berdampak positif terhadap kehidupan petani. Keseriusan (commitment) semua pihak yang terkait dalam proses ini diperlukan untuk jangka yang panjang. ______________________________ Keywords: Agricultural credit, Small farmer, Poverty, Lombok – Indonesia Kata kunci: Kredit pertanian, Petani kecil, Kemiskinan, Lombok – Indonesia _______________________ 1)

Similar version of this paper was presented in the AusAID Scholarship Alumni Conference 2008 “Global Challenges, Local Solutions”, in Jakarta, 23 October 2008

INTRODUCTION Demand for agricultural products, on one hand, has been continuously increasing following the increase in population, people’s income, education, and awareness of the importance of nutrition consumption. On the other hand, there is decreasing agricultural production as results of global warming, water crisis, and increased use of agricultural lands for other purposes (Darwanto and Ratnaningtyas, 2005). Both the increased demand for and the decreased supply of agricultural products will increase the price of the products (McIver, 2001; Taslim Sjah: Can Small Farmers …

Penson et al., 2002; Seitz et al., 2002). As a result, agricultural producers’ income should be improved, too. However, farmers’ livelihood signs no improvement, some even getting worse than before (see e.g., Amin, 2008; Booth, 2003). This is indicated, for instance, individual farm size gets smaller and many of them require almost constantly outside fund for financing their farming activities. The Government of Indonesia is apparently aware of the hard life experienced by the farming community. Accordingly the Government provides assistances such as the establishment of floor price

37 for some agricultural products, with purpose for increasing product price and farmers’ income; and providing subsidised credit for the farmers to help solve the working capital shortage (World Bank, 1992). This paper analyses whether Lombok farmers can prosper and how to improve their livelihood. Therefore, results presented in this paper centres on those issues and reflects the results of study on the use of agricultural credit by agricultural producers in Lombok, Indonesia. RESEARCH METHOD This study was carried out using two periods of surveys in Central Lombok: during July 2001 – March 2002 and December 2003 – January 2004. The surveys applied semi-structured and face-to-face interviews (Babbie, 2004; Neuman, 1997; Patton, 2002), which were considered suitable to the respondents’ situation. There were 65 farmers surveyed in the first fieldwork and 139 farmers in the second. In addition, surveys included key informants considered capable of providing insightful information (Kumar, 1993; Patton, 2002). This latter survey was meant mainly to verify the information obtained in the earlier survey. Farmer respondents were selected to represent high, medium and low levels of repayment, and this was based on information provided by the related offices (Agriculture of Central Lombok and the Bank Rakyat Indonesia (BRI) Branch Praya). The samples covered three villages: Plambik (Praya Barat Daya district), Sengkerang (Praya Timur), and Beraim (Praya Tengah). More detailed procedures of the conduct of this study can be seen in the author’s thesis (Sjah, 2005). Data were analyzed descriptively, included the use of percentage. The results are presented in the following section. RESULTS AND DISCUSSIONS This section commences with the description of the conditions of farmer respondents and impact of credit use. These followed by the section that answers the question raised in the title. Socio economic background of farmers The main asset of farmers is their land. The average size of the land they farmed was 0.69 ha. There were 88% farmers who owned the land. The remaining 12% were those who possessed the land for farming under many

different systems of renting, such as cash renting and share production systems. The value of the land possession was about IDR 34 millions. The land can be farmed at least twice a year, with seasonal crops included rice production that takes place during the rainy season (Sjah et al., 2006c). It is reported that the farm generated, on average, IDR 3.4 million per year (Sjah et al., 2004). In addition to land, some farmers had valuable livestock, including cattle, buffaloes, horses, goats, and poultry. The values of the big animal ranged from IDR 2 – 5 millions. Some farmers had about 15 heads of chicken raised on the yards of their houses or farms. There were also farmers who had motorbikes (for details, see Sjah, 2005). With their assets of land and others farmers work on their farms and outside (off-farm). The used their family workers to work wherever and whenever possible, such that the families can earn more income to support families’ livings. The total off-farm income averaged IDR 1.9 millions, making total family income of IDR 5.3 millions. This amount equalled to about AUD 1,000 in 2001, when AUD 1 = IDR 5,000. With this amount of income and average family members of four, the farming families can be classified as poor families, and indeed 77% farmers admitted that their income was insufficient for meeting families’ needs. The main characteristic of farming family’s work is that there is busy time on farms during planting and harvest times, and there is less occupied time in other times. The family size was four persons, leaving the head of family as the main labour force. Farmers aged, on average, 40 years (ranged from 20 – 60 years). They could work productively. Average formal education was 6 years, or finished elementary school. They can read well enough, yet there is not much access to reading in the villages. They are not used to do farm records, too. Half of the farmers’ age was spent on farming, so they are rich of experience in agricultural practices. Farmers’ experience with credit use Agricultural producers have almost life long interactions with credit. Results of interviews revealed that all respondents have had long experience with the use of credit before they received this current credit. There was 83% of the respondents who had experience with government credit, 58% with private credit, and about 50% with both sources. The main and general reason for recurring use of outside funds was that farmers lacked of working capital for financing their farming activities, and in many Agroteksos Vol. 19 No. 1-2, Agustus 2009

38 occasions for continuing the living of their families. There were more reasons for using credit, and these reasons were reported in other papers (Sjah et al., 2003a; 2006a; b). It can also be reported here that there were significant number of farmers who expressed dislike of borrowing when they have their own money or income to support farming and their families’ life. Thus, both reasons for borrowing and not borrowing indicate that farmers were using credit since they were forced to by the conditions. Impact of credit use The use of credit in farming, as in other businesses, should have positive impact on business development (Fu-Shan, 1994; Lee et al., 1988; Wright, 2000). However, given the reasons for borrowing was rarely for developing capacity of the business, then impact may not be so noticeable. In line with the purposes of government credit provision, this study examined the impact of credit use on agricultural production and farmers’ income. Based on farmers’ own assessment, the use of credit could increase agricultural production on average by 11%. However, the improvement was reported by about half portion of the respondents, and another half reported no impact of credit use. Most improvement sourced from farm intensification. That is, the credit availability enabled farmers to apply more agricultural inputs, particularly fertilizers. There were two farmers who reasoned improvement through timely practice that matched with water availability. Of the group who indicated no production improvement, their major reason was that they applied the same level of farm intensification from year to year, with or without credit. These farmers spent the credit they obtained for non-farm needs, which was mainly for food consumption, and this signed the condition of rural poverty. There was also another interesting reason for no production improvement: the farm is too small to enable impact of other input applications. Therefore, farm size is of importance consideration in increasing agricultural production. The average impact of credit use on farmers’ income was only 5%. This is less than the percentage of production improvement. The lower impact was due to lower reported income increase, or some farmers who reported production increase did not experience income increase. Level of income is theoretically influenced by price, amount of production and production cost (McIver, 2001; Penson et al., 2002; Seitz et al., 2002). There were some cases Taslim Sjah: Can Small Farmers …

that production increase was followed price fall, or production cost increase more than the increase in value of the production. Detailed information on impact of credit use on production and income of individual farmers can be seen in Sjah (2005) and Sjah et al. (2006b). The income increase was also less than interest rate of government credit (which was about 10%) or commercial bank rate (which was more than the government credit interest). This means that the use of credit could increase farmers’ income by 5%, yet this was insufficient to cover additional cost of using credit. To sum up, credit use had little impact in increasing agricultural production and producers’ income. As income increase only a little, it appears unrealistic to expect farmers to be able to repay their loans. The survey found that there were significant number of farmer respondents who did not repay or has not repaid their borrowings, with various reasons, including lack of income (Sjah et al., 2003b; 2006a; b). Can farmers prosper? Given the prices of agricultural production generally tend to increase continuously, the farmers income should increase. Agricultural producers should have had better standard of living. However, this was not the case. In fact, farmers are still living under about the same level of poverty, even though the Government of Indonesia has implemented many credit programs. For agricultural sector, there has been many credit programs under various names, including ‘Bimas’ (Bimbingan massa, mass guidance) (Suyatno et al., 1999), ‘Inmas’ (Intensifikasi massa, mass intensification) (Thorbecke and Van Der Pluijm, 1993) KUT (Kredit usaha tani, farm credit), and KKP (Kredit ketahanan pangan, food security credit) (Rahardjo, 2000), and many other similar names. The main features of these government credit schemes were that: they are subsidised so that it has interest rate lower than the market; they are lent to groups; and they are specific to a single purpose (such as farming only). In addition, there are credit schemes, which target community in general, including agricultural producers, too. Yet, this is also with single business orientation for individual application. Credit provided to farming business has a period of four months (based on crop production cycle) and in practice is tolerable to be repaid within one year. The impact of the use of this agricultural credit has not been substantially positive and farmers’ standard of living has (almost) unchanged. The most obvious indication of

39 these is that farmers are still highly dependent on credit, either from government or private sources. One of the reasons of why credit impacts only a little is that the amount and the scope of credit are limited as well as the size of farm is small. Small amount of credit will have a little impact, since the capacity of credit is limited. Interviews with farmers revealed that they obtained only 58% (IDR 0.8 millions) of their desired amount of IDR 1.3 millions. The actual farming cost was IDR 1.7 millions per farmer (calculated from the per ha farming cost of IDR 2.5 millions (BNI, 2000) times the farmers’ land size of 0.69 ha). The farmers lowered the amount they wanted as they have some amount on hand for the covering part of the farming costs. Since the amount farmers received is much lower than the actual farm needs then farmers apply less than recommended farming practices. The consequence of this is that the farms yield less production and generate less income (lower than its optimal capacity). The impact of credit is still a little even at the time when the amount of credit given equals the actual farm costs. The justification for this is that farmers only have a small farmland (that is 0.69 ha). The small farm has a small capacity to generate income although all inputs applied as recommended. The current credit system allows credit to be used for farming purposes only. This means that farmers should not use credit other than for farming. Therefore, opportunities to do other businesses that promising income such as trading and home industries become limited or inaccessible. The credit system should give flexibility to farmers to use credit in whatever prospective business. In fact, there were 54 out of 65 surveyed farming families who have other than farm business activities. These farmers earned IDR 2.2 millions, which contributed 36% to the total family’s income. Another thing that needs consideration in order to increase farmers’ income is about the farm size. The small farm size (which is 0.69 ha), as has been previously mentioned, has a limited capacity to receive all factors inputted to it and thus the capacity to generate income is also limited. So, even when credit is provided in sufficient amount to cover all farming costs, the income generated from the farm will not increase any much further. The small farm size appears to trap farmers staying in stagnant level of income and they continue their dependence on credit provision. To increase the farm capacity requires increasing individual farm size. However, this

requires improvement in the current credit system. The current systems of small individual amount for large number of credit users and short period of borrowing need to be reversed. Larger individual amount and longer borrowing period of credit are required to enable enlargement of individual farm sizes to viable sizes such that it can make repayment of loan and at the same time can meet families’ living costs. The enlargement of individual farm sizes can mean a drastic move since some farming families have to buy other farms and some others have to exit agricultural sector and find other income generating activities outside the agriculture. The farm build-up and faming activities that follow need a longer period of repayment to allow for building the capacity to repay. For example, credit can be repaid after 10 – 30 years, depending on the cycle of income earning and repayment capacity built from the activities. The farmers who exit agriculture will require other credit, still with larger amount and with possible significant income generation impact. The credit provision for this group should be accompanied by assistance in gaining business skills or employment. Through business management training the farmers should be able to search for promising businesses and run them in profiting way. The credit repayment period for these new persons in business needs to be adjusted to the nature of income earning and their capacity to repay. CONCLUSIONS The current credit systems characterised by small individual amounts, short period of repayments, and single business purpose, have a little impact in improving the living standards of farmers. The credit systems appear to trap farmers to stay in almost the same level of income and they become dependence on credit from year to year. New credit systems need to take place to break the trap and then to prosper. The credit should be provided in larger individual amounts that enable significant income generation impact, be repaid in longer periods to enable the building of repayment capacity, and to be used any business that promises profit. The new credit systems need to be done together with agricultural restructuring that enable building up of viable farm size, from which generated income is sufficient for repaying the debt and meeting families’ needs. For the time being, credit or other government supports are still required until the proposed

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40 changes impact farmers’ livelihood positively, and this will take a long process. ACKNOWLEDGEMENT The Author acknowledges AusAID for funding this study; Graduate School of the University of Queensland for providing travel award (GSRTA) for conducting the second field work; and respondents for sharing their information, ideas, and opinions. REFERENCES Amin, M., 2-8 September 2008. Pangan dan kemiskinan (Food and poverty). Agroindonesia. Babbie, E., 2004. The practice of social research. 10 ed. Wadsworth, Belmont. BNI, 2000. Petunjuk Pelaksanaan Kredit Ketahanan Pangan (Advice for the Implementation of the Food Sufficiency Credit). PT BNI Tbk, Regional Office 08, Denpasar. Booth, A., 2003. Decentralisation and poverty alleviation in Indonesia. Environment and Planning C-Government and Policy 21, 181202. Darwanto, D.H. and P.Y. Ratnaningtyas, 2005. Kesejahteraan petani dan peningkatan ketersediaan pangan: Sebuah dilemma? Agro-Ekonomika, 41-58. Fu-Shan, L., 1994. Building an agricultural financial system in developing countries: The Taiwan experience. 1st ed. Maw Chang Book Company, Taipei. Kumar, K., 1993. An overview of rapid appraisal methods in development settings. In K. Kumar (ed.), Rapid Appraisal Methods, World Bank, Regional and Sectoral Studies, Washington, D.C., pp. 8-22. Lee, W.F., M.D. Boehlje, A.G. Nelson and W.G. Murray, 1988. Agricultural finance. 8ht ed. Iowa State University Press, Ames, Iowa. McIver, J., 2001. Micro economics. McGrawHill, Roseville, NSW, Australia. Neuman, W.L., 1997. Social research methods: Qualitative and quantitative approaches. Allyn and Bacon, Boston. Patton, M.Q., 2002. Qualitative research and evaluation methods. 3rd ed. Sage Publications, Thousand Oaks, California.

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41 Suyatno, T., H.A. Chalik, M. Sukada, C.T.Y. Ananda and D.T. Marala, 1999. Dasardasar perkreditan (Fundamentals of credit). 4th ed. Gramedia Pustaka Utama, Jakarta. Thorbecke, E. and T. Van Der Pluijm, 1993. Rural Indonesia: Socio-economic development in a changing environment. New York University Press, New York.

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